Technology

Seagate Technology Seen Weathering Disk Drive Lull

Seagate Technology (STX) is expected to post a decline in earnings when it reports fiscal Q2 results after the close Monday, on the heels of rival Western Digital's report that sent its shares upward.

Seagate and Western Digital (WDC) collectively have about 85% of the disk drive market, after decades of industry consolidation. The industry has a long history of boom and bust cycles, which appear to be over. That was the consensus stemming from Western Digital's report on Thursday, as IBD reported.

The consensus estimate from analysts polled by Thomson Reuters is for Seagate to post revenue of $3.6 billion, up 13% from the year-earlier quarter but down from 33% growth in the prior quarter. Earnings per share minus items are projected to be $1.27, down 4%.

Seagate and Western Digital face a challenging period, which includes slowing PC sales, which use disk drives. PC sales are hurt by rising sales of tablets and smartphones, which don't contain disk drives.

"There hasn't been much evidence that PC trends have improved in a material way, but demand appears to have at least stabilized, while the disk drive industry has kept a tight lid on production," wrote Edward Parker, an analyst at Lazard Capital Markets, in a research report released Thursday.

"The March quarter outlook is the next hurdle as it remains to be seen if (the total addressable market) will start to recover, but we continue to point out that pricing erosion remains gradual and gross margins are still elevated," Parker wrote. Lazard maintained its buy rating on both companies.

Seagate and Western Digital were both up nearly 1% in afternoon trading Friday.